Auto industry demands GST cut and incentive-based scrappage policy to revive demand

SIAM has had several engagements with the Union government at various levels, where specific suggestions were made for demand stimulus, including reduction in base GST rates from 28% to 18% for a limited period.

By:Published: May 20, 2020 10:33:56 AM

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With no specific mention of stimulus in the recently announced ‘Aatma Nirbhar Bharat’ package, the automotive industry has once again demanded cut in GST rates and incentive-based scrappage policy to revive the demand as well growth momentum. Though the packages announced last week went big on much-needed reforms in agriculture, mining, defence, public health, education and more, there was no such announcement for the automotive industry, which has been struggling for more than a year now due to overall economic slowdown as well lockdown owing to the Covid-19 pandemic, said Vipin Sondhi, managing director and CEO, Ashok Leyland.

Specifically, commercial vehicles (CV) sector has been one of the worst hit within the industry, owing to pressure from a prolonged slowdown and, further, from an unprecedented pandemic. Therefore, expectations for a direct stimulus package in the form of reduction in GST, an incentive-based vehicle scrappage policy and a thrust on the purchase of buses for public transportation were high. “This is the need of the hour and the government may please consider a structured policy intervention,” Sondhi said.

“Further, an accelerated infrastructure spend in rural India would create assets, jobs and income in rural India, which would bring movement of goods, thereby also providing a fillip to the CV industry,” he added. While welcoming the recent packages announced by the Union finance minister, Rajan Wadhera, president, SIAM, said the agri-sector package might benefit the auto sector indirectly in the medium-term but the industry needed an immediate stimulus to boost demand, which had not happened.

Indian automotive industry supports employment of more than 3.7 crore people and contributes to 15% of GST, amounting to `150,000 crore every year. The sector was already facing an unprecedented challenge with 18% de-growth last year. According to an assessment by SIAM on the impact of Covid-19 on demand for vehicles in the current financial year, the sector could have degrowth in the range of 22% to 35% in various industry segments for FY21, if the overall Indian GDP growth is at 0-1% for the same, he said.

It is against this background that the industry was keenly looking forward to some direct fiscal measures, which could have boosted demand for the auto sector and stop job losses. SIAM has had several engagements with the Union government at various levels, where specific suggestions were made for demand stimulus, including reduction in base GST rates from 28% to 18% for a limited period, and an incentive- based vehicle scrappage policy, which would have made it a less painful revival and kick started the industry.

There is also an urgent need to support the dealers in terms of improving their liquidity and including them under the MSME Act after redefining its definition. The industry would continue to engage with the government and seek direct interventions for revival, he added.

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